Spring Hill to enter bond market

Rapid growth and needed infrastructure improvements has lead Spring Hill officials to seek municipal bonds as a way to finance parks, roads and other projects.

City leaders have been discussing going to the bond market for months to finance projects like the new Port Royal Road Park, fire station and the widening of Duplex Road. It will be the first time the city has gone to the bond market, though it has taken out other loans in the past.

While the municipal bond process may seem long and confusing, City Finance Director Jim Smith said it isn’t much different than seeking a home or business loan.

“You hear and read about ratings and on the surface know it’s good when stocks are up and bad when they are down,” he said. “It sounds complex, but it really isn’t.”

Companies, states, counties and municipalities can get bond ratings, offered through agencies such as Moody’s and Standard and Poor’s. The Board of Mayor and Aldermen recently voted to select the Nashville-based firm Bass, Berry and Sim to help detail the city’s qualities to potential investors in the bond market once the bond rating is attained.

Factors like a city’s debt, how it manages its funds and how well-known the city is can impact how high a bond rating the municipality receives, Smith said. How well a city is doing also affects how much interest the city has to pay back to investors, Smith said.

“If we weren’t managing ourselves well, we will pay a higher interest than someone our size does who is doing well,” he said. “When you sell bonds, investors tell you what rate to pay. Whoever bids the lowest rate for us to pay gets the deal. It is important we get as high a rating as we can because the higher the rating, the lower the interest cost.”

Similar factors also help determine if an investor wants to buy a Spring Hill bond, Smith said. Investors may look at median-income of citizens, median house prices in the area and how many new businesses and shoppers the city is attracting, he said.

“They want to know how well we have managed our finances, if we are growing and if we have a fund balance or reserves,” Smith said. “We are looking relatively good considering where we have come from six years ago. (Investors) want to know where we have come from, and where we are going.”

The city is hoping to go to the market in July after getting a bond rating from Standard and Poor’s, which Smith said is considered friendlier to government entities. When the city gets its rating and goes to the market, an investment company will then buy the bonds for the $9 million the city is requesting, Smith said.

“When you go the primary market they will be bought by an investment company,” Smith said. “They will give us $9 million and we are out of the deal. They in turn have salesmen who call on their customers to by the bond.”

“Citizens want road conditions to improve,” Smith said. “We need parks because we have so many kids.”

Eventually, the city will have to pay back the $9 million received in bonds plus whatever interest is owed, Smith said. Just like an individual paying back a loan, he said the city will have to set aside room in its budget to pay back both the bond and an interest.

“We have a fair amount of room,” Smith said. “We aren’t going to use all of the money, just what we need to. We do have to factor in the debt service so we don’t tie ourselves down too much and can’t afford to pay it back.”

One of the reasons the city went to the bond market is to avoid raising property taxes to pay for needed improvements.

“There is no thought of all about increasing property taxes,” Smith said. “We do not want to raise taxes to pay for this.”

Because the city is beholden to taxpayers as well as investors, Smith said a lot of work is required to make sure the bond process is transparent.

“We get asked a lot ‘So, when are we going to the market?’” Smith said. “It’s not a simple process. There is a lot of background work that needs to be done. We have to identify what we are going to spend the money on and what it will cost.”

As a result, the Board of Mayor and Alderman must pass numerous resolutions to ensure the process is done above board.

“There are a lot of people and entities involved and there are a lot of disclosures required by the securities exchange,” Smith said. “You play by their rules. Everyone has to know what is coming. There are a lot of moving pieces.”

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